Key Points
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Space Exploration Technologies and Tesla are exploring a potential merger.
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One is growing quickly with a steep valuation, while the other is not growing — and still has a steep valuation.
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It is hard to project a scenario where an investment in a combination of these two stocks makes money through 2030.
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Elon Musk is considering merging his two business empires under one corporate umbrella. Tesla (NASDAQ: TSLA) and Space Exploration Technologies (NASDAQ: SPCX) have both formed committees to explore the potential merits of a merger, which could lead to a proposal in the near future. This would put electric vehicles, battery packs, rocket launches, satellite internet, and artificial intelligence (AI) business lines under one roof.
What could a $10,000 investment in a combined SpaceX and Tesla business be worth in 2030? For anyone interested in these stocks after a merger, it pays to do the valuation math.
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SpaceX’s fast growth and steep valuation
SpaceX made its public debut earlier this year, and now sports a market cap of almost $1.9 trillion. It has quickly become one of the largest stocks in the world by market cap and is already larger than Tesla on this metric.
The business is still small compared to megacap technology standards. Revenue was $14.6 billion last quarter, up 161% year over year. This is mainly due to the Starlink satellite internet business and the company’s investments in AI infrastructure. Connectivity revenue grew to $5.25 billion in the quarter, up 69% year over year, and AI revenue was $7.56 billion, up more than 10-fold from the same quarter a year ago.
Both connectivity and AI are growing rapidly for SpaceX, but the business remains quite small relative to its market cap. It has a trailing price-to-sales ratio (P/S) of 56, one of the most expensive in the entire stock market today, indicating investors are expecting massive amounts of revenue growth in the years ahead.
Tesla’s slow growth and steep valuation
Tesla is a much larger business than SpaceX, with revenue exceeding $100 billion over the past 12 months. However, it is growing much more slowly.
In fact, last quarter, it didn’t grow at all. Tesla’s Q3 revenue was little changed year over year as it struggles to continue scaling its electric vehicle (EV) business, which still accounts for the majority of its business today. Huge investments are being made in self-driving cars and humanoid robots, but the technologies are still financially irrelevant for the business right now.
Tesla may trade at a lower P/S ratio than SpaceX at 13, but it is nowhere near a cheap stock. It has a price-to-earnings ratio (P/E) of 417, and its earnings have been declining for years now. Tesla’s EBIT (earnings before interest and taxes) peaked at nearly $15 billion in late 2022 and has since fallen to $3.63 billion.
That is not a great trend. Why would that turn the corner in the years ahead if revenue isn’t growing?
TSLA EBIT (TTM) data by YCharts
What could the combined business be worth?
A Tesla and SpaceX merger has a lot of promise because both businesses play at the leading edge of technological innovations. If AI infrastructure grows unabated, satellite internet disrupts all connectivity, and humanoid robots dominate work around the globe, then sure, a $10,000 investment in Tesla and SpaceX today could be worth more by 2030.
I think it is highly unlikely to actually happen over this short time span. Today, if you add up both market caps for Tesla and SpaceX, you get a value of nearly $3.5 trillion. It is going to be incredibly difficult for these businesses to generate earnings by 2030 sufficient to warrant a $3.5 trillion valuation, and that is before accounting for share dilution. A $10,000 investment in Tesla and SpaceX could be worth much more in 2030, but I think it is likely to be worth less.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Space Exploration Technologies and Tesla. The Motley Fool has a disclosure policy.
